The International Monetary Fund (IMF) has revised its growth forecast downwards for South Africa in the latest World Economic Outlook update. This despite the financial institution revising the global economy outlook upwards, reflecting expectations of a vaccine-powered strengthening of activity later in the year and additional policy support to continue. The global economy is expected to grow 5.5% in 2021 and 4.2% in 2022, whilst South Africa is expected to experience muted growth of 2.8% and 1.4% respectively. After one of the deepest contractions experienced by any country in the world, South Africa is expected to have one of the slowest recoveries.
South Africa paints a similar picture to other emerging economies, with many emerging markets entering the pandemic with unsustainable sovereign debt levels, high unemployment and inadequate health care resources. This coupled with the ineffectiveness of South Africa’s vaccine rollout programme leading to the IMF’s dire growth forecast.
The IMF predicts the strength of the recovery will vary significantly across different countries. The larger powerhouse economies will continue to receive additional fiscal and central bank support, which will act as a tailwind to aid the global recovery. The effectiveness of vaccination rollout programmes around the globe will pave the way for bolstered economic activity in the second half of 2021, which will outweigh the drag on near-term economic activity as a result of rising infections and associated lockdowns.
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Unfortunately, the economic recovery in emerging markets is expected to be more long-winded. There is expected to be a divergence between China and other emerging economies. China’s effective containment measures, infrastructure drive and central bank support have facilitated a strong economic recovery. Oil exporters and tourism-based emerging market economies are anticipated to be the hardest-hit. The outlook for oil prices is subdued whilst it is forecasted that the normalisation of cross-border travel will be slow, anticipating more pain for an already decimated tourism sector.
The global unemployment rate remains much higher than pre-Covid levels and the burden of the crisis has fallen unequally across groups. The pandemic is expected to reverse the progress made in poverty reduction over the past two decades, with close to 90 million people expected to fall below the breadline during 2020 and 2021.
From a South African perspective, it’s unfortunate that the pandemic was the tip of the iceberg for many years of corruption and mismanagement amongst the country’s leaders.
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